[Federal Register: April 30, 2007 (Volume 72, Number 82)]
[Proposed Rules]
[Page 21131-21135]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30ap07-16]
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FEDERAL RESERVE SYSTEM
12 CFR Part 205
[Regulation E; Docket No. R-1282]
Electronic Fund Transfer
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule; request for comments.
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SUMMARY: The Board is proposing to amend Regulation E, which implements
the Electronic Fund Transfer Act, to withdraw the interim final rules
for the electronic delivery of disclosures issued March 30, 2001. The
interim final rules address the timing and delivery of electronic
disclosures, consistent with the requirements of the Electronic
Signatures in Global and National Commerce Act. Compliance with the
2001 interim final rules is not mandatory. Thus, removing the interim
rules from the Code of Federal Regulations would reduce confusion about
the status of the provisions and simplify the regulation. Similar rules
are being proposed under other consumer fair lending and financial
services regulations administered by the Board.
DATES: Comments must be received on or before June 29, 2007.
ADDRESSES: You may submit comments, identified by Docket No. R-1282, by
any of the following methods:
Agency Web site: http://www.federalreserve.gov Follow the instructions for submitting comments at http://www.federalreserve.gov/.
.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: regs.comments@federalreserve.gov. Include the
docket number in the subject line of the message.
FAX: (202) 452-3819 or (202) 452-3102.
[[Page 21132]]
Mail: Jennifer J. Johnson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue,
NW., Washington, DC 20551.
All public comments are available from the Board's Web site at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons. Accordingly, your
comments will not be edited to remove any identifying or contact
information. Public comments may also be viewed electronically or in
paper in Room MP-500 of the Board's Martin Building (20th and C
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: John C. Wood or David A. Stein,
Counsels, Division of Consumer and Community Affairs, at (202) 452-2412
or (202) 452-3667. For users of Telecommunications Device for the Deaf
(TDD) only, contact (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
The purpose of the Electronic Fund Transfer Act (EFTA), 15 U.S.C.
1693 et seq., is to provide a basic framework establishing the rights,
liabilities, and responsibilities of participants in electronic fund
transfer (EFT) systems, and to provide individual consumer rights. The
Board's Regulation E (12 CFR part 205) implements the EFTA. Examples of
types of transfers covered by the EFTA and Regulation E include
transfers initiated through an automated teller machine (ATM), point-
of-sale (POS) terminal, automated clearinghouse (ACH), telephone bill-
payment plan, or remote banking service. The EFTA and Regulation E
require financial institutions to provide certain disclosures to
consumers in writing, including but not limited to initial disclosures
of terms and conditions of an EFT service, documentation of EFTs by
means of terminal receipts and periodic account activity statements,
and change in terms notices. Certain persons other than financial
institutions are also required to comply with specific disclosure
provisions of Regulation E.
Board Proposals Regarding Electronic Disclosures
On May 2, 1996, the Board proposed to amend Regulation E
(Electronic Fund Transfers) to permit financial institutions to provide
disclosures by sending them electronically (61 FR 19696). Based on
comments received, in 1998 the Board published an interim rule
permitting the electronic delivery of disclosures under Regulation E
(63 FR 14528, March 25, 1998) and similar proposals under Regulations B
(Equal Credit Opportunity), M (Consumer Leasing), Z (Truth in Lending),
and DD (Truth in Savings) (63 FR 14552, 14538, 14548, and 14533,
respectively, March 25, 1998).
Based on comments received on the 1998 proposals, in September 1999
the Board published revised proposals under Regulations B, E, M, Z, and
DD (64 FR 49688, 49699, 49713, 49722 and 49740, respectively, September
14, 1999). At the same time, the Board published an interim rule under
Regulation DD allowing depository institutions to deliver disclosures
on periodic statements in electronic form if the consumer agreed (64 FR
49846, September 14, 1999). While these rulemakings were pending,
Federal legislation was enacted addressing the use of electronic
documents and records, including consumer disclosures.
Federal Legislation Addressing Electronic Commerce
On June 30, 2000, the President signed into law the Electronic
Signatures in Global and National Commerce Act (the E-Sign Act) (15
U.S.C. 7001 et seq.). The E-Sign Act provides that electronic documents
and electronic signatures have the same validity as paper documents and
handwritten signatures. The E-Sign Act contains special rules for the
use of electronic disclosures in consumer transactions. Under the E-
Sign Act, consumer disclosures required by other laws or regulations to
be provided or made available in writing may be provided or made
available, as applicable, in electronic form if the consumer
affirmatively consents after receiving a notice that contains certain
information specified in the statute, and if certain other conditions
are met.
The E-Sign Act, including the special consumer notice provisions,
became effective October 1, 2000, and did not require implementing
regulations. Thus, financial institutions are currently permitted to
provide in electronic form any disclosures that are required to be
provided or made available to the consumer in writing under Regulations
B, E, M, Z and DD if the consumer affirmatively consents to receipt of
electronic disclosures in the manner required by section 101(c) of the
E-Sign Act.
The Interim Final Rules
On April 4, 2001, the Board published for comment interim final
rules to establish uniform standards for the electronic delivery of
disclosures required under Regulation E (66 FR 17,786). Similar interim
final rules for Regulations B, M, Z, and DD were published on March 30,
2001 (66 FR 17322 (M) and 17329 (Z)), and April 4, 2001 (66 FR 17779
(B) and 17795 (DD)). The interim final rules incorporated most of the
provisions that were part of the 1999 proposals.
Each of the interim final rules incorporated, but did not
interpret, the requirements of the E-Sign Act. Financial institutions
and other persons, as applicable, generally were required to obtain
consumers' affirmative consent to provide disclosures electronically,
consistent with the requirements of the E-Sign Act.
The 2001 interim final rule for Regulation E established uniform
requirements for the timing and delivery of electronic disclosures.
Under the interim rule, disclosures could be sent to an e-mail address
designated by the consumer, or could be made available at another
location, such as an Internet Web site. If the disclosures were not
sent by e-mail, financial institutions would have to provide a notice
to consumers alerting them to the availability of the disclosures.
Disclosures posted on a Web site would have to be available for at
least 90 days to allow consumers adequate time to access and retain the
information. Financial institutions also would be required to make a
good faith attempt to redeliver electronic disclosures that were
returned undelivered, using the address information available in their
files. Similar provisions were included in the interim final rules
adopted under Regulations B, M, Z, and DD.
Commenters on the interim final rules identified significant
operational and security concerns with respect to the requirement to
send the disclosure or an alert notice to an e-mail address designated
by the consumer. For example, commenters stated that some consumers do
not have e-mail addresses or may not want personal financial
information sent to them by e-mail. The commenters also opposed the
requirement for redelivery in the event a disclosure was returned
undelivered. In addition, many commenters asserted that making the
disclosures available for at least 90 days, as required by the interim
final rule, would increase costs and would not be necessary for
consumer protection.
In August 2001, in response to comments received, the Board lifted
the previously established October 1, 2001 mandatory compliance date
for all of the interim final rules. (66 FR 41439, August 8, 2001.)
Thus, institutions are
[[Page 21133]]
not required to comply with the interim final rules. Since that time,
the Board has not taken further action with respect to the interim
final rules on electronic disclosures in order to allow electronic
commerce, including electronic disclosure practices, to continue to
develop without regulatory intervention and to allow the Board to
gather further information about such practices.
II. The Proposed Rules
The Board is proposing to amend Regulation E and the official staff
commentary by (1) withdrawing portions of the 2001 interim final rule
on electronic disclosures that restate or cross-reference provisions of
the E-Sign Act and accordingly are unnecessary; (2) withdrawing other
portions of the interim final rule that the Board now believes may
impose undue burdens on electronic banking and commerce and may be
unnecessary for consumer protection; and (3) adding certain provisions
to provide guidance regarding electronic disclosures. (Similar
amendments are also being proposed by the Board, in today's issue of
the Federal Register, under Regulations B, M, Z, and DD.)
Because compliance with the 2001 interim final rules is not
mandatory, removing this material from the Code of Federal Regulations
would reduce confusion about the status of the electronic disclosure
provisions and simplify the regulation. Certain provisions in the
interim final rules, including provisions addressing foreign language
disclosures, were not affected by the lifting of the mandatory
compliance date and accordingly are now in final form; these provisions
would not be deleted.
Since 2001, industry and consumers have gained experience with
electronic disclosures. During that period, the Board has received no
indication that consumers have been harmed by the fact that compliance
with the interim final rules is not mandatory. The Board has also
reconsidered certain aspects of the interim final rules, such as
sending disclosures by e-mail, in light of concerns about data
security, identity theft, and ``phishing'' (i.e., prompting consumers
to reveal confidential personal or financial information through
fraudulent e-mail requests that appear to originate from a financial
institution, government agency, or other trusted entity) that have
become more pronounced since 2001. The Board is proposing to eliminate
certain aspects of the 2001 interim final rule, such as provisions
regarding the availability and retention of electronic disclosures, as
unnecessary in light of current industry practices.
Finally, the Board is proposing to delete, as unnecessary, certain
provisions that restate or cross-reference the E-Sign Act's general
rules regarding electronic disclosures (including the consumer consent
provisions) and electronic signatures because the E-Sign Act is a self-
effectuating statute. The Board is issuing the proposed rules pursuant
to its authority under section 904 of the EFTA to prescribe rules to
carry out the purposes of the Act. The proposed revisions to Regulation
E and the official staff commentary are described more fully below in
the Section-by-Section Analysis.
The Board solicits comment on all aspects of this proposal.
Specifically, the Board seeks comment on the appropriateness of
eliminating certain provisions contained in the 2001 interim final
rule.
III. Section-by-Section Analysis
12 CFR Part 205 (Regulation E)
Section 205.4 General Disclosure Requirements; Jointly Offered Services
Section 205.4 contains the general disclosure requirements under
Regulation E, including provisions relating to the form of disclosure.
Section 205.4(a)(1) generally requires financial institutions to
provide disclosures in writing and in a form that the consumer may
keep. The Board proposes to revise Sec. 205.4(a)(1) to clarify that
institutions may provide disclosures to consumers in electronic form,
subject to compliance with the consumer consent and other applicable
provisions of the E-Sign Act. Some institutions may provide disclosures
to consumers both in paper and electronic form and rely on the paper
form of the disclosures to satisfy their compliance obligations. For
those institutions, the duplicate electronic form of the disclosures
may be provided to consumers without regard to the consumer consent or
other provisions of the E-Sign Act because the electronic form of the
disclosure is not used to satisfy the regulation's disclosure
requirements.
Section 205.4(c) in the 2001 interim final rule refers to Sec.
205.17, the section of the interim final rule setting forth general
rules for electronic disclosures. Because the Board is proposing to
delete Sec. 205.17, as discussed further below, the Board also
proposes to delete Sec. 205.4(c). Sections 205.4(d) (multiple accounts
and account holders) and (e) (services offered jointly) would be
renumbered as Sec. Sec. 205.4(c) and (d) respectively.
Section 205.17 Requirements for Electronic Communication
Section 205.17 was added by the 2001 interim final rule to address
the general requirements for electronic communications. The Board
proposes to delete Sec. 205.17 from Regulation E and the accompanying
sections of the staff commentary, reserving that section for future
use.
In the interim rule, Sec. 205.17(a) defines the term ``electronic
communication'' to mean a message transmitted electronically that can
be displayed on equipment as visual text, such as a message displayed
on a personal computer monitor screen. The deletion of Sec. 205.17(a)
would not change applicable legal requirements under the E-Sign Act.
Section 205.17(b) incorporates by reference the provisions of the
E-Sign Act, such as the provision allowing disclosures to be provided
in electronic form. The deletion of this provision would have no impact
on the general applicability of the E-Sign Act to Regulation E
disclosures. Section 205.17(e) was added in the 2001 interim final rule
to clarify that persons, other than financial institutions, that are
required to comply with the regulation may use electronic disclosures.
The Board is proposing to delete this provision as unnecessary because
the E-Sign Act is a self-effectuating statute and permits any person to
use electronic records subject to the conditions set forth in the Act.
Sections 205.17(c) and (d) address specific timing and delivery
requirements for electronic disclosures under Regulation E, such as the
requirement to send disclosures to a consumer's e-mail address (or post
the disclosures on a website and send a notice alerting the consumer to
the disclosures). The Board no longer believes that these additional
provisions are necessary or appropriate. Electronic disclosures have
evolved since 2001, as industry and consumers have gained experience
with them. Although many institutions offer e-mail alert notices to
consumers in connection with online services, some consumers may choose
not to receive notifications by e-mail and the Board sees no reason to
require e-mail alert notices in all cases. In addition, the Board has
reconsidered certain aspects of the interim final rules, such as
sending disclosures by e-mail, in light of concerns about data
security, identity theft, and phishing that have become more pronounced
since 2001.
With regard to the requirement to attempt to redeliver returned
electronic disclosures, as the commenters noted,
[[Page 21134]]
institutions would be required to search their files for an additional
e-mail address to use, and might be required to use a postal mail
address for redelivery if no additional e-mail address was available.
The Board believes that both requirements would likely be unduly
burdensome. In addition, the concerns that have been raised about the
requirement to use e-mail for the initial delivery of a disclosure or
notice apply equally to the use of e-mail for an attempted redelivery.
Under the proposed rule, the Board would not require institutions
to maintain disclosures posted on a web site for at least 90 days as
provided in the 2001 interim final rule for several reasons. First,
based on a review of industry practices, it appears that many
institutions maintain disclosures posted on an Internet Web site for
several months, and, in a number of cases, for more than a year. For
example, it appears that institutions that offer online periodic
statements to consumers typically make those statements available
without charge for six months or longer in electronic form. This
practice has developed even though Regulation E does not currently
require institutions to maintain disclosures for any specific period of
time. Second, the Board believes that an appropriate time period
consumers may want electronic disclosures to be available may vary
depending upon the type of disclosure, and is reluctant to establish
specific time periods depending on the disclosures. Nevertheless, while
the Board is not proposing to require disclosures to be maintained on
an Internet Web site for any specific time period, the general
requirements of Regulation E continue to apply to electronic
disclosures, such as the requirement to provide disclosures to
consumers at certain specified times and in a form that the consumer
may keep. Although these general requirements apply to electronic
disclosures, the Board does not believe that the 90-day time period set
out in Sec. 205.17(c) of the 2001 interim final rule is needed to
ensure that institutions satisfy these requirements when they provide
electronic disclosures. The Board, however, will monitor institutions'
electronic disclosure practices with regard to the ability of consumers
to retain Regulation E disclosures and will consider further regulatory
action if it appears necessary.
The official staff commentary to Sec. 205.17 of the interim final
rule provides guidance on the provisions set forth in Sec. 205.17 such
as delivery of disclosures or alert notices by e-mail, redelivery if
disclosures or a notice is returned undelivered, and retention of
disclosures on a Web site for 90 days. As noted above, because the
Board is proposing to delete Sec. 205.17 of the regulation, the Board
also proposes to delete the accompanying provisions of the official
staff commentary.
IV. Solicitation of Comments Regarding the Use of ``Plain Language''
Section 722 of the Gramm-Leach-Bliley Act of 1999 requires the
Board to use ``plain language'' in all proposed and final rules
published after January 1, 2000. The Board invites comments on whether
the proposed rules are clearly stated and effectively organized, and
how the Board might make the proposed text easier to understand.
V. Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA)
generally requires an agency to perform an assessment of the impact a
rule is expected to have on small entities.
However, under section 605(b) of the RFA, 5 U.S.C. 605(b), the
regulatory flexibility analysis otherwise required under section 604 of
the RFA is not required if an agency certifies, along with a statement
providing the factual basis for such certification, that the rule will
not have a significant economic impact on a substantial number of small
entities. Based on its analysis and for the reasons stated below, the
Board believes that this proposed rule will not have a significant
economic impact on a substantial number of small entities. A final
regulatory flexibility analysis will be conducted after consideration
of comments received during the public comment period.
1. Statement of the objectives of the proposal. The Board is
proposing revisions to Regulation E to withdraw the 2001 interim final
rule on electronic communication. The Board is also proposing to
clarify that Regulation E disclosures may be provided to consumers in
electronic form in accordance with the consumer consent and other
applicable provisions of the E-Sign Act.
The EFTA was enacted to provide a basic framework establishing the
rights, liabilities, and responsibilities of participants in electronic
fund transfer (EFT) systems. The primary purpose of the act is the
provision of individual consumer rights. 15 U.S.C. 1593. The EFTA
authorizes the Board to prescribe regulations to carry out the purposes
of the statute. 15 U.S.C. 1693b. The Act expressly states that the
Board's regulations may contain ``such classifications,
differentiations, or other provisions, * * * as, in the judgment of the
Board, are necessary or proper to carry out the purposes of [the Act],
to prevent circumvention or evasion [of the act], or to facilitate
compliance [with the Act].'' 15 U.S.C. 1693b(c). The Board believes
that the revisions to Regulation E discussed above are within the
Congress' broad grant of authority to the Board to adopt provisions
that carry out the purposes of the statute.
2. Small entities affected by the proposal. The proposed revisions
would delete provisions of Regulation E that are not in effect on a
mandatory basis and, accordingly, the proposed revisions would not
change the legal requirements applicable to any financial institutions,
regardless of their size. Therefore, the proposed revisions would not
have a significant economic impact on small entities. The number of
small entities affected by this proposal is unknown.
3. Other federal rules. The Board believes no federal rules
duplicate, overlap, or conflict with the proposed revisions to
Regulation E.
4. Significant alternatives to the proposed revisions. The Board
solicits comment on any significant alternatives that may provide
additional ways to reduce regulatory burden associated with this
proposed rule.
VI. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
Ch. 3506; 5 CFR part 1320 Appendix A.1), the Board reviewed the rule
under the authority delegated to the Board by the Office of Management
and Budget (OMB). The collection of information that is required by
this proposed rule is found in 12 CFR part 205. The Federal Reserve may
not conduct or sponsor, and an organization is not required to respond
to, this information collection unless it displays a currently valid
OMB control number. The OMB control number is 7100-0200.
Section 904 of the Electronic Fund Transfer Act (EFTA) (15 U.S.C.
Sec. 1693b) authorizes the Board to issue regulations to carry out the
purposes of the Act. This information collection is mandatory. Since
the Federal Reserve does not collect any information, no issue of
confidentiality normally arises. However, the information, if made
available to the Federal Reserve, may be protected from disclosure
under exemptions (b)(4), (6), and (8) of the Freedom of Information Act
(5 U.S.C. 552 (b)(4), (6), and (8)). The disclosures required by the
rule and information about error allegations and their resolution are
confidential between the institution and the consumer.
[[Page 21135]]
The EFTA and Regulation E are designed to ensure adequate
disclosure of basic terms, costs, and rights relating to electronic
fund transfer (EFT) services provided to consumers. Institutions
offering EFT services must disclose to consumers certain information,
including: initial and updated EFT terms, transaction information,
periodic statements of activity, the consumer's potential liability for
unauthorized transfers, and error resolution rights and procedures.
These disclosures are triggered by certain events specified in the EFTA
and Regulation E. Institutions are required to retain evidence of
compliance for not less than two years from the date that disclosures
are required to be made or action is required to be taken; however, the
regulation does not specify the types of records that must be retained.
To ease institutions' burden and cost of complying with the disclosure
requirements of Regulation E (particularly for small entities), the
Federal Reserve publishes model forms and disclosure clauses.
Regulation E applies to all financial institutions and merchants and
payees that engage in ECK transactions. The Board has determined that
no new requirements or revisions to existing requirements are contained
in this proposed rule.
Comments are invited on: a. Whether the collection of information
is necessary for the proper performance of the Federal Reserve's
functions; including whether the information has practical utility; b.
the accuracy of the Federal Reserve's estimate of the burden of the
information collection, including the cost of compliance; c. ways to
enhance the quality, utility, and clarity of the information to be
collected; and d. ways to minimize the burden of information collection
on respondents, including through the use of automated collection
techniques or other forms of information technology. Comments on the
collections of information should be sent to Secretary, Board of
Governors of the Federal Reserve System, Washington, DC 20551, with
copies of such comments to be sent to the Office of Management and
Budget, Paperwork Reduction Project (7100-0202), Washington, DC 20503.
List of Subjects in 12 CFR Part 205
Consumer protection, Electronic fund transfers, Federal Reserve
System, Reporting and recordkeeping requirements.
Text of Proposed Revisions
Certain conventions have been used to highlight the proposed
changes to Regulation E. New language is shown inside bold-faced
arrows, while language that would be removed is set off with bold-faced
brackets.
For the reasons set forth in the preamble, the Board proposes to
amend Regulation E, 12 CFR part 205, as set forth below:
PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)
1. The authority citation for part 205 continues to read as
follows:
Authority: 15 U.S.C. 1693b.
2. Section 205.4 would be amended by revising paragraph (a)(1),
removing paragraph (c), and redesignating paragraph (d) as paragraph
(c), and paragraph (e) as paragraph (d), respectively, as follows:
Sec. 205.4 General disclosure requirements; jointly offered services.
(a)(1) Form of disclosures. Disclosures required under this part
shall be clear and readily understandable, in writing, and in a form
the consumer may keep. [rtrif]The disclosures required by this part may
be provided to the consumer in electronic form, subject to compliance
with the consumer consent and other applicable provisions of the
Electronic Signatures in Global and National Commerce Act (E-Sign
Act)(15 U.S.C. 7001 et seq.).[ltrif] A financial institution may use
commonly accepted or readily understandable abbreviations in complying
with the disclosure requirements of this part.
* * * * *
[lsqbb](c) Electronic communication. For rules governing the
electronic delivery of disclosures, including the definition of
electronic communication, see Sec. 205.17.[rsqbb]
[lsqbb](d)[rsqbb] [rtrif](c)[ltrif] Multiple accounts and account
holders--(1) Multiple accounts. A financial institution may combine the
required disclosures into a single statement for a consumer who holds
more than one account at the institution.
(2) Multiple account holders. For joint accounts held by two or
more consumers, a financial institution need provide only one set of
required disclosures and may provide them to any of the account
holders.
[lsqbb](e)[rsqbb] [rtrif](d)[ltrif] Services offered jointly.
Financial institutions that provide electronic fund transfer services
jointly may contract among themselves to comply with the requirements
that this part imposes on any or all of them. An institution need make
only the disclosures required by Sec. Sec. 205.7 and 205.8 that are
within its knowledge and within the purview of its relationship with
the consumer for whom it holds an account.
Sec. 205.17 [Removed and Reserved]
3. Section 205.17 would be removed and reserved.
4. In Supplement I to Part 205, Section 205.17 would be removed and
reserved.
By order of the Board of Governors of the Federal Reserve
System, April 20, 2007.
Jennifer J. Johnson,
Secretary of the Board
[FR Doc. E7-7876 Filed 4-27-07; 8:45 am]
BILLING CODE 6210-01-P